I promise that next time, we’ll talk about what’s going on with MARKETS AND THE ECONOMY. I am sure the volatility of the last few weeks has caught your attention… 😉 

If you can’t wait, I have been talking about the “Age of Uncertainty” since January, which is starting to feel like a century ago.

You can catch up here:

• Investment Structure in The Age of Uncertainty.

• It’s All (No) Fun and Games.

But if you just want a break from all the silliness that’s going on, I have the perfect song for you.

It’s from Norah Jones’ latest album, “Visions.”

It’s called “I Just Wanna Dance” and it might just be the perfect song for 2025…

And one last thing before we get going…

→ I was just interviewed by John Coumarianos on his new show, Capital Considered. 

We talked about a lot of things, from bubbles to asset valuations to some of the more unfortunate incentives that plague the business of asset management.

You can watch or listen on:

• YouTube here.

• Spotify here.

A Young Person's Guide to Making Life Decisions.

A good friend asked me to talk to a group of local young women who are finishing high school soon.

My friend asked me because she thinks I’m “smart with money.”

I can’t blame her, given what I do for a living…

and given what I have immersed myself in for roughly two decades:

→ Finance, economics, markets, and investing.

Of course, I am supposed to teach them the basics, as they say…

Things that should be helpful to them as they launch into their “adult years.”

Things like budgeting, saving, and how credit cards work.

Maybe even how to pick a college major and choose a career.

But I have the nagging feeling that a lecture about sticking to a budget is the LAST THING anybody wants to hear on a late Sunday afternoon while the sun is shining outside (thanks to the elves who changed the time on all our clocks last weekend).

So I’ll try SOMETHING ELSE.

Something with a longer shelf life, as Nobel Prize winner (and my first boss) Bob Merton would call it. Wish everyone luck… 😉

→ Every money decision happens within a bigger reality that we call LIFE.

You’re born. You live. You die.

Time moves in one direction and one direction only.

The big question is how you handle yourself between those two dramatic bookends.

This is where being a financial economist starts to be helpful.

I think of life in a three-dimensional way. 

I can literally see it when I close my eyes.

While TIME constantly moves forward, we actually move through SPACE along the way.

It’s like we’re stepping through the picture frames of a movie, like on your iPhone.

Each frame lasts an instant, but every frame is connected to what came before it and it leads to the thing that happens next.

As you become an adult, you start to move through the picture frames on your own terms.

→ If you think that’s scary and hard, you’re not alone. It’s scary to EVERYONE. That might be why your parents are trying to outsource this to me. It’s probably scary to them too…

→ And if you think that’s fun and exciting, you’re also not alone. Independence and freedom is kind of what this whole life thing is about.

Now, once you can visualize life like I do, making decisions like I do becomes a lot more intuitive.

You’re basically trying to make sure you land in the next picture frame someplace that’s mostly OK (aka, not take a massive tumble).

And… and this is the ultimate trick… you’re trying to stretch the frame WIDER, so that life can be fuller and more interesting. I use the word “trick” intentionally.

Now, with this mental model, we can talk about money...

Two Key Definitions

There are two building blocks to money:

→ Assets and liabilities.

Assets are things that have value and that you OWN. They have value today because their value might grow with time or because you can derive income from them.

Assets might be a house, a business, stocks in your investment account, or your human capital. Your human capital is your ability to earn income from working.

Liabilities are things you OWE to someone else. The thing about liabilities is that they are always attached to an asset: a house (that’s a mortgage), a business deal, something…

And if there is nothing else, you’re the asset. Those liabilities are attached to your ability to pay them out of future income, like student debt or credit card bills.

First principle — everything costs money.

You don’t have to like it.
I don’t like it either.
But here we are…

That means things now and things later.

That’s why we talk about BUDGETING and INVESTING wisely.

When you spend money today on things that you probably won't remember tomorrow, that's money that's leaving your pocket and money that's off to funding someone else's "life movie."

It happens all day every day.

We’re not trying to stop it. But you should be aware of it.

Let me give you an example.

When you go to Starbucks, you’re exchanging money for the experience of the drink now.

Shockingly, if you spend $5 on coffee every day, that adds up to something like $1,825 after a year.

You do that for 5 years, and that’s over $9,000 in cash leaving your pocket.

Then you realize you could have saved and invested that money, and it could have grow to roughly $13,000 after a decade (assuming a 5% return).

→ That’s $13,000 that could have been available to you a few “frames” down the line to do something else…

Maybe something more PRODUCTIVE.
Maybe something more MEMORABLE.

In the meantime, for every Starbucks coffee you buy, that’s money that’s going to Starbucks and its shareholders (after they pay employees, cover rent, etc.).

Quickly you realize that being an INVESTOR is a decent idea:

→ While people are going around spending money and enjoying life, they’re putting some of that money into your pocket.

This is NOT meant to be anti-consumption.

Life is meant to be fun and to enjoy things with people you care about.

However, it might be a little pro-investing, as a way of RECYCLING MONEY into your life.

Either way, realize that you can be intentional about HOW you spend your money. Maybe a Starbucks with friends is worth it. But maybe there’s something bigger down the line you’d rather have the money for.

Second principle — your lifetime budget constraint.

The real budget constraint bites over your entire lifetime, not one frame at a time.

That means that when you’re young and not making a lot of money, it’s not practical to expect that you’ll be a massive saver.

Save just enough to cover emergencies, if you lose your job, etc.

Think of it as covering a potential liability that might come out of nowhere.

(We call that RISK, get used to it. It’s a constant in life).

The thing that links up your whole lifetime is DEBT.

You can borrow today to pay for something that your bank account doesn’t cover.

Debt is a liability.

→ And remember that all liabilities are attached to SOMETHING.

What the “something” is will determine whether it’s a GOOD idea or a BAD idea.

Let’s start with the easy one. Credit cards…

Here is the deal with credit cards. If you’re borrowing for a long period of time and the interest rate is something like 15-20%, you will have a very hard time paying off your debt.

Borrowing at the rates that credit cards carry is like creating pressure INWARD that tends to limit what you can do in the future…

→ It’s like gravity making your future picture frames SMALLER.

I know a lot of people who’ve done very well in business deals, where they were a small part of the whole thing but got to keep a lot of the “upside” thanks to borrowed funds. Just like I know a lot of people who’ve created lots of wealth in their mortgaged home.

How does this work? Let’s pretend you have $1M.

• You could buy an apartment for $1M.

• You could borrow $9M, add it to your $1M, and buy a $10M house.

Now if home prices go up 10%…

• Your apartment is worth $1.1M and you made $100,000. That’s nice… 😉

• The house is now worth $11M and you made $1M (that’s double your money).

So far so good… but work through what happens if home prices fall 10%.

• The apartment is worth $900,000 — not great but you’re not broke.

• The house is worth $9M, which means it just covers your mortgage (your $1M investment just went “poof”).

Debt makes things bigger, up AND down.

So when it comes to borrowing, ask yourself: Overall, is this more likely to “shrink” the future or expand it? And can you handle the bad situations?

A few other principles on the way out…

First and foremost, get comfortable with uncomfortable things and situations.

→ Get comfortable with big numbers.

→ Get comfortable with complex answers.

→ Get comfortable with silence and not knowing.

That last one is key. If you’re applying to college, this is part of the deal. You apply and then you wait… and you wait and you wait.

You have to keep moving through life, going to school, doing your work, going to your activities — and all the while… you don’t know what happens next. Welcome to adult life.

None of us knows what happens next. How comfortable you are with trying for big things and not knowing will dictate your “luck surface.”

Also, do whatever you can to stretch and GROW YOUR LUCK SURFACE.

Most success in life is a mix of dumb luck and doing the things you need to do to “catch luck” along the way.

→ Doing your homework does NOT guarantee you’ll get into your dream school. But NOT doing your homework sure won’t improve your odds.

→ Reaching out to strangers for internships doesn’t guarantee a great summer gig, but talking to nobody ever guarantees you won’t.

Finally, here are two more:

→ Think long and hard about irreversible decisions and keep your options open… until it makes sense to commit. Then, commit hard.

→ And if you’re lucky to have lots of money at some point, go back to the beginning of this and ask yourself “how do I stretch from here?”

At that point, traditional “budget constraints” won’t apply…

You’ll have Starbucks money for a few lifetimes.

But as long as you’re pushing for wider picture frames, you’ll find meaning in life. And a meaningful life is the springboard to a happy and fulfilling life.

Good luck out there. You can do this.

Be well,
Jonathan 👋

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